Eminent domain is the power of a government to acquire privately owned property without the owner’s consent for a public purpose, provided that the owner receives just compensation. While eminent domain resolves the holdout problem and may improve efficiency by allowing the government to implement socially beneficial projects with minimum delays, it does not respect property rights and an improper use of it could lead to unfair outcomes to the dispossessed land owners. We develop a new bargaining model to investigate how the ambiguities in eminent domain laws affect the efficiency of outcomes, extent of holdouts, the division of surplus between the buyer (executive arm of government or an authorized private entity acting on behalf of the government) and sellers (property owners whose properties are acquired), and the resulting welfare levels. Our bargaining model mirrors the current practice of compulsory acquisition and can be implemented easily. We first show theoretically that the absolute power of eminent domain always leads to unfair outcomes. To rectify the issue of unfairness, we identify the degree of ambiguity in eminent domain law at which sellers are compensated at least their subjective values for their properties (fairness) and agreement occurs immediately so there is no holdout (efficiency).